Kazakhstan Needs More RUR and CNY in International Trading

Kazakhstan, which has linked KZT to a multi-currency basket since September, where the RUR has the share of 10%, the next year wants to introduce a floating corridor and to define the scope of interventions, by which the limits of this corridor shall shift.


Which is the term for the share of RUR to grow in a multi-currency basket and when Chinese CNY is going to be there, which schemes of the establishment of the national regulator are being discussed by the Heads of the Central Banks of the countries of the Customs Union and why it’s more correct to have court procedures under the ex-head of BTA bank Mukhtar Ablyazov in England or France – dwelled on during the interview for the agency Prime the Chairman of the National Bank of Kazakhstan Grigorij Marchenko.


- Since September 2nd KZT has been tied to the multi-currency basket of currencies (70% - USD, 20% - EURO, 10% - RUR). What for was that done? Why does RUR has a small share in the basket and can it be raised in prospect?


- The introduction of the basket does not mean that have introduced completely the scheme which is available in Russia and other countries. We don’t yet have operating corridor, liabilities on automatic interventions, if the edges of this corridor cross, as well as we don’t yet have the liability that if we perform some scope of interventions then the limits of the corridor are shifting.


Yet we have made the first step – announced that we’ll have the basket in order for the people and economic agents would gradually get use to the thought that we don’t need to tie only to USD.


Our problem is that 92% of payments in international trading of Kazakhstan are in USD. Even within the trade with China although since 1996 the payments can also be made in KZT and CNY we have more than 97% for USD. Still the choice remains for the participants of the international trade, and they traditionally pay with USD.


Talking about the structure of our international trade than Europe takes the first place, covering more than 50% of our export. The second place is given to Russia, the third - China. In principle, USD should not be in our basket at all, but EUR, RUR and CNY should be.


We should understand that yet the basket is only of indicative and psychological character. Next year we suggest introducing operating corridor.


The scheme shall resemble quite a lit the Russian one, i.e. the operating corridor, automatic interventions, shift of the corridor in case if the scope of investments exceeds definite level. But we shall announce about that publically and publish all relevant numbers. The shares of currencies may change.


Once again, when the first step was made in Russia, USD took 90% share in the basket, it’s just everybody has already forgotten it. We also make only the first step.


When the operating corridor appears as well as automatic interventions, it is yet still early to discuss the scopes of USD, EUR, RUR and maybe CNY. We’ll get back to this discussion next year.


- Are the market members ready for the new mechanism of linking of KZT to the multi-currency basket?


- For 25 years people have got used to USD pretty much. That is why I say that at our first stage the linking to the basket is rather about indicative character.


We want them to accept the thought that not only USD rules for a man. From the point of view of the population and economic agents nothing has changed. It’s just every day the quote to USD, EUR and RUR is published, and now we have additionally published quote to the basket.


Some people give focus to this, other don’t. But we hope that gradually they’ll get use to it, and then it’ll have operating meaning.


- When can the inclusion of CNY into the currency basket take place? Do you see any risks of CNY inclusion into the basket, considering it is unconvertible currency?


- We have announced that in prospect we can include CNY into the currency basket. But for this it needs to be used more for payments. CNY in recent years has only strengthened.


There are always risks, there are freely convertible currencies, just look how strongly have fallen NOK or CAD. Comparing with CAD or AUD or NOK, those who invested into CNY indeed have benefited significantly relative to USD.


Anyway our future us strongly connected with Russia and China. For the prospect it is clear that these two currencies should play greater role in international trading of Kazakhstan in comparison with USD.



- The CIS states have been discussing already for a long time the possibility of introduction of regional reserve currency. How is it urgent at all?


- It’s clear that it can be only from the CIS currencies. Moreover, considering formal and technical aspect RUR is ready for that. We are interested also in that RUR and CNY would accede the list of special drawing rights (SDR), issued by IMF.


Then we could allot a part of our assets in these currencies, as both countries are our big neighbors. Now if we as the Central Bank (CB) shall invest some assets into RUR and CNY, formally they will not be considered as a part of gold and foreign currencies reserves, as these currencies are not included into SDR and is not classified as freely convertible.


The sooner Russia and China solve this issue and their currencies join SDR, the better it will be for our region.


- In August during the meeting of CB heads of the CU states they discussed an option of establishment of supranational body with the functions of financial market regulation. Which functions will be assigned to it and when may it appear?


- Treaties on the establishment of the supranational regulator were signed yet in 2010 by the Presidents of the three countries. The documents state clearly that by 2020 we should have a common financial market, which has to have the single body of financial oversight, located in Kazakhstan.


Now we are discussing the way we are going to move in this direction. It’s clear that all three countries shall move towards international standards, i.e. Basel III for the bank sector and Solvency II for the insurance market. The rates and terms are still a pretty open question as Basel III itself is not yet a formed and finalized, this concerns liquidity requirements.


It’s clear that most likely it shall be finally introduced in Europe by about 2019. We should assemble one a quarter, we had a meeting in Kazakhstan in May and in August we had a meeting in Minsk. The next we planned Moscow but as on November 15th we are having the 20th anniversary of the national currency, we have invited to visit us the heads of Central Banks of Russia and Belarus. Mrs. Nabiullina and Mrs. Yermakova have kindly accepted the invitation.


- Which models of operation of the supranational regulator are being discussed now?


- The Presidents are aware of that a political decision, the details will have to be completed. There are different views, they said that there would be a single supranational body for all. Another opinion is that all three regulators – national banks – shall keep on working, but there shall be some class of big financial institutions with an additional license, allowing simultaneous operation within all three markets.


It seems to me, that the first plan is more correct and we should move in this direction. But this is the matter of discussion, we still have several years for that. In Europe they also move in this direction. Generally, we can image the idea when all oversight authorities shall be delegated to the supranational body, and Central Banks shall concentrate on their main businesses: sales and purchase contracts, payment systems and financial stability.


Now we’ll take a look at European practice, as they have assigned the common regulator, but yet it shall monitor system-significant financial institutions. We’ll see, the final decision is to be made by the heads of our countries.


- Is it possible that in some time the CU states shall coordinate their monetary-credit policies?


- It is possible within the frameworks of an economic association and within the frames of the adopted decision to move towards the establishment of common currency. But to move in this direction even in theory, we have to determine macroeconomic parameters, as it was made in due time in Maastricht.


But now it has become evident that the set of parameters in the Maastricht treaty was not sufficient, as it includes only three parameters – inflation rate, budget deficit and state debt level.


Evidently, they should coordinate some details of tax-budget policy, and to a greater extent, the policy in the sphere of labor market, pension policy.


What kind of pension policy can we have when in Russia 30% of population are pension-receivers, and we have 10% of those, and Belarus – 26%. You have budget payments of 20% of GDP and even more, as we have 10%. If different countries have different policy, this shall result in discrepancies of fiscal policy, and this in its turn shall lead to the discrepancies of monetary policy. We all are perfectly aware of inflation rate in Belarus, how can we now conduct a common monetary-credit policy with them?


At first all these parameters of monetary-credit and fiscal policy should be agreed and than they should be fulfilled together during 5 and better 10 years through. Only afterwards we can start preparations to hold common monetary-credit policy and to introduce the common currency. And now it’s pure talking.


-  Russian Central Bank today us trying to the problem of aggressive growth rates of unsecured loans, by increasing the risk factor on loans with usurious rates and increasing the demands on reserves. Does the regulator face this problem in Kazakhstan?


- We don’t have such rates, they are twice lower, but in general we also concern about this. This activity should be regulated and some limitations should be implemented, we are also working on it. The whole number of suggestions is being considered for the banks, specializing in unsecured bank loans and those banks in the portfolio of which the share of such loans exceeds definite level.


For them additional requirements regarding capital shall be implemented. For the kind of banks we also need to apply differentiated demands on payments into the deposits securing system.


We don’t have some common reduction of credit’s quality, as well as acute improvement of it. Troublesome credits during the crises revealed their effects. We have established a special affiliate – troubled loans fund, we call the banks to create SPV, which would transfer into the balances of these bodies troubled loans.  Six banks have already established such affiliates, the process goes on but very slowly. 


- Do you observe the interest of Russian banks to the market of Kazakhstan?


- There three Russian banks operating at the moment in the country – Sberbank, VTB and Alpha-Bank. Discussions are held from time to time, but people do not come with the wish to buy something or to establish an affiliate. We have 16 of 38 banks with foreign capital. After VTB came in 2009, no new Russian players have come to the market of Kazakhstan.


- Could you comment of the situation over Halyk-Bank which is forced to be in litigation with Russian borrowers because of the discrepancies of the Bank Law of the Russian Federation?


- Considering that the Customs Union is operating and we are moving towards the economic union, the idea that Kazakhstani or Belarusian bank is not able to give loans in Russia or vice versa is strange for us. Regarding economic core, this decision has no logical ground. Regarding formally legal aspect, it’s hard for me to comment, the proceedings are still going on. I hope that an unbiased legal decision shall be made.


- Many foreign banks, having losses in the countries with developing economy, after the crisis change the strategy of business and leave. This has happened in Russia. Do you observe such trend in your country?


- Today one refuses, tomorrow other will come. UniCredit has sold its affiliate because it was unfortunate purchase. They bought it for two billion EUR, and sold for 350 millions. No one forced them, it was absolutely voluntary decision. Wise players do not purchase banks for high costs. Now the costs on banks are less than one capital, now they should buy them, but they don’t.


Later, when the situation turns and the costs start growing, they once again will come and buy, and they once again shall burn their fingers and will sell again. This herd instinct is strong. Unfortunately they treat all developing markets equally, and if something happens in Mexico or Brazil, they are leaving all developing countries. It turns out, that this way they “punish” our markets for their own mistakes.


- How does the introduction of Basel II regulations promote in Kazakhstan?


- Basel III is a long-standing process, simply there are no definite finalized standards yet. We come to Basel for an annual assembly and listen to some discreet suggestion, and then bank lobby intensifies in reply and influences politicians who in their turn press international bodies.


Eventually often discreet suggestions are introduces slower than we wish and not that logically. When the final set of demands is completed, and I it’s real already by 2015, then we’ll introduce them. Yet at this stage each country follows its own schedule.


- Have the banks of Kazakhstan started developing regulations on capital in a test mode within the frameworks of Basel III?


- The banks are developing those, and we are developing those for them, then we meet and discuss it. We have the Financial Stability Council, there we periodically discuss these matters. When for the first time we discussed this issue in 2011, we suggested introducing Basel III starting from January 1st 2013, but then troubles occurred in Basel, but not here.


As they had delays all the time, there was no need to go ahead of everyone. Our banks can fulfill the regulations on capital. One should understand that implementation of dynamic provisions, additional premiums on capital for the system-significant banks tightens the capital requirement.


Now some banks have performed their calculations, and we are gathering in the end of September and beginning of October for the Financial Stability Council to discuss it. Furthermore, the rates of the moves of Russia are very important for us.


- In Kazakhstan within the frames of the pension reform the Single National Pension Fund has been established. What share of the Fund’s sources do you plan to allocate abroad and in which securities?


- The private pension funds have been allowed investing into securities abroad of up to 40% of funds. In reality they invested 8-10%. On the one hand, pension funds were under-invested into foreign securities, and on the other, over-invested into state securities. That is why in mid-term prospect of 3-5 years we would like to increase the share of foreign securities up t o 20%.


- Do you already have the strategy of funds investing?


- At first the procedure of association to start, as the government yet has not agreed with the shareholders of private pension funds about the exchange scheme. Them the decree of the President should establish the Pension Fund Council. The Council shall define the strategy. The assets shall be managed by the National Bank.


We suggested for the Council to include two delegates from the government, one – from the Administration of the president, one – from the National Bank, two representatives of the financial market and three independent members, for the majority would not be from state bodies. This suggestion is under consideration now.


The main principle is preservation, for the yield to be higher than inflation. That is why this Fund shall lead no aggressive policy. We need to define the share to be invested into the tools with fixed yield, and the share to be invested into the shares; the share for the country, and the share for the foreign states.


- During the SCO summit the heads of the states discussed the establishment of the bank and fund of the organization’s development. Do you observe the need to establish such bank, as there are already similar organizations of EDB bank?


- Kazakhstan has always suggested that the SCO bank can and should be established on the basis of the Eurasian Development Bank (EDB) with the headquarters in Almaty, where it is now situated, which shall allow extending the number of member-states. There are two big players – China and Russia, it’s going to be the way they going to agree. It’s clear that all other countries also have the right to vote. There have been different versions: to found this bank within the territory of China or in Tashkent. We think that our suggestion is logical. There is infrastructure, we don’t have to create it from the ground.


- Does Kazakhstan plan to strive for the extradition of the ex-head of BTA Bank Mukhtar Ablyazov? Russia and Ukraine have addressed with the same requests, and now Ablyazov himself is under arrest in France.


- We have the line of the law-enforcement bodies, which naturally insist on its extradition to Kazakhstan. They can be understood, as they are responsible for their part of work. But the international community shall have it difficult to prove that in case of extradition to Kazakhstan the trial shall be fair.


No matter how hard our judges and prosecutors try, even in terms of complete transparency, still they’ll comment that he was sued with prejudice. Although he is not at all a politicians. It would be correct for everybody for him to be tried in Britain or France, but the fair case is that he would be sentenced to the term he deserved and Ablyazov would make this term there.


And then there will be no claims that something was made wrongly, unfairly or with excess of power.


Translated from Prime Time